A New Question For CIOs - Technology Sovereignty?
With rising and unpredictable geopolitical tensions around the world, policy changes in a jurisdiction could limit or even halt cross-border cloud data flows. If that were to occur, global corporations with in-country operations tied into centralized infrastructure could face immediate operational disruption. This is a low-probability, but high-impact risk - one that warrants inclusion in strategic thinking around resilience and business continuity and should be on board agendas.
The 'to-do' list for technology leaders was already daunting. The deck is already full and dominated by the pace of AI-driven innovation and the need to place substantial, and sometimes uncomfortable, bets on emerging technology. Equally, macroeconomic uncertainty and shifting trade policies are forcing a careful re-balancing – between driving cost optimization through global standardization – and building agility through more distributed infrastructure.
Now, an additional layer of complexity has surfaced. Policy changes linked to geopolitical events could render parts of today's global application and infrastructure landscape unusable — overnight. Developing true alternatives quickly is extraordinarily difficult. Indeed, the technology market today offers few short-term answers, and establishing viable sovereign options or credible contingency plans requires both time and significant investment.
This reality pushes CIOs and their corporate boards toward a fundamental reassessment of technology models, enterprise architectures, and cloud strategies. A pragmatic way forward is a framework across three lenses:
- Risk Assessment & Exposure — map critical workloads and data dependencies that hinge on cross-border flows, identifying potential points of failure.
- Strategic Options — diversify providers and regions, strengthen hybrid capabilities, and ensure data portability to reduce lock-in.
- Governance & Partnerships — establish contingency playbooks, engage early with policy and regulatory bodies, and explore alliances with sovereign technology providers.
Hard to do today, challenging to execute — and yet, a risk that cannot be ignored.
This is on the agenda for one of our upcoming board meetings at the Executive Technology Board – as we tap into the collective intelligence of a curated group of Global CIO/CTO/CDO/CAIOs. Appreciate your perspectives on this.
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That's the number of Jackson Hole speeches that Jay Powell has delivered so far in his Federal Reserve Chair and his swan song this year, we'll cap that at 8. And today we are welcoming back Steve Soznick, who is the chief strategist at Interactive Brokers, where he analyzes markets for professional and retail traders alike with decades of experience spanning options, equity markets, and global macro trends. Steve brings a sharp eye to market psychology. His traders insight columns are for their candid and often contrarian take on what really drives investors' behavior. So it's great to see you. It's great to see you here, Steve. Um, let's dig into what's been happening since the last time you were on because that was in March and we had a little thing called Liberation Day. And, uh, what do you, what do you think of the markets rightnow? Well, to me, the key to the market so far has been just the resilience and theThe by the dip strength that's been coming in. I mean, basically, obviously, um, you know, what we saw in late March and early April was kind of the mother of all dips because we did get into bear market territory very quickly. But since then, we've seen traders just relentlessly buying every dip and to a point where I would say theMarkets have a bit of a ratchet effect where at least in the last few weeks you've seen big moves up and very small moves down, which to me was indicative of nobody wanted to miss a buyable dip, therefore they either weren't selling or B were so quick to buy that dip that it never reallyoccurred and that leads to our word of the day here, which is when we have a dip, guess what? We see movement of money invested in stocks from one place, and you can think sectors here, industries or entire asset classes to another place as investors anticipate either the next stage of the economic cycle, or they just want to shift money around to whatever's hot and maybe get it at better prices. How do you think about market rotation? Well, in its basic form, it's pretty benign, right? I mean, it's, it's buy low sell high, so you're, you know, you've, you're that's relatively low and you're selling something that's relatively high, um, if it were only that simple all the time, you know, a lot of times what happens is sectors become very much in demand or very dominant, and that's clearly been the case with, with big cap technology recently. Uh, anything AI related, anything tech related, the bigger, the bigger the better, so to speak. And so what, what we've seen here is, you know, a little bit of movement away from some of those high flyers which, which have come to dominate the the problem is because they so dominate the indices, if you get a bit of selling little incremental selling in things like Microsoft or or Nvidia or or those kind of names, it has a disproportionate effect on the indices. So you know, you can see people moving moving out of these tech names and yesterday, you know, by midday yesterday, it got a little worse at the end of the day, but around midday, you only had 3 sectors lower, two of which were telecommunications and technology. and even after the initial sell-off this morning, and again we're on Wednesday, um, it had, it had recovered to that and it was basically telecommunications technology, and today it was consumer discretionary thanks to Tesla. Target also was the key there. How do you explain investors that this is a healthy thing for the bull market, especially since you have a lot of retail traders and even on the institution side that are overweight in tech right now?That are probably looking at their portfolios scratching their heads thinking, wait, how is this good for me? So how would you explain it? It's an insult. This is healthy. I'm losing money here. Well, that, and therein lies the problem when sectors get so crowded because crowded trades have a way of punishing, have a way of being punishing, and they're disproportionate, you know, it's the same thing any time you have too many people trying to rush for the exit of something, people are going to get trampled. And that's kind of what's happening here is, on the other hand, step back and think,If you've owned some of these stocks for a period of time, you are doing so well. If, if you can't cope with a 1 or 2% drawdown or, or, or maybe, you know, something a little bit bigger, well then you're carrying too much risk and you really do need to think about what you're carrying and you probably do need to be rotating. So yeah, it stinks, but you can't just look at this day to day. You have to look at it with a broader perspective and say, OK, you know, if, in general, and I say this, I preach this all the you're overly concerned about relatively minor moves, then you're carrying too much risk and therefore you should be rotating into, you know, either out of, out of these winners or something a bit, bit more defensive cash, cash, especially with, you know, especially with interest rates still at 4%, you're, you're getting paid to keep money in cash, you know, although it's not going to go up, you know, it doesn't have the potential to rise like some of the stocks do. I'm looking at shares at Pallanter down again today. We closed down and it was interesting because I went out to Vander Track Research, which tracks retail trading, and there was aggressive dip buying yesterday, yet we still closed down 9%. So how do you look at retail traders versus institutions and how even if you see that by the dip mantra that doesn't always translate to the stockprice. I love that question. And, and the reason here is, um, you know, retail has gotten to be such a huge percentage of the market, but itIn terms of the day to day, but if an institution decides to, if, if a series of institutions decide to, um, reallocate their portfolio holdings, you know, it's, it's kind of, it's kind of you're standing in the way, you're standing in the way of, of a larger larger piece of momentum, somebody much bigger than you. They're pushing one way, you're pushing the other. If, uh, you know, collectively a whole lot of small people can push back, but if they're really relentless about the selling, it's going to move the market lower. And again,Pallanttier was a shocking move down yesterday. On the other hand, it's been a shocking move up and, and, and so a lot of people have benefited from this. Yes, it moved back, it fell 9% yesterday. That and that's like a bit, that's clearly a bit of an eye opener, but if you look fundamentally, Pallanttier is about as expensive of a stock as we've like Amazon 10 years Now, could could Pallanttier grow into that valuation? I'm not gonna say no. And certainly they've got, you know, the, to a certain extent the government on their side because they've been picking up a lot of government contracts, and I think that's provided some of the momentum. But when you're heavily, when you're relying upon momentum, when you're investingMomentum has works both ways and so things that have positive momentum on the upside, things that have volatility on the upside, I guess here's actually where I'm going to step back. Volatility is, is, is agnostic of the move. Volatility is measures if you go up 2% or down 2%, that's you go up 2%, that's what I like to call socially acceptable volatility because everybody likes that. 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And when, you know, when the president put out his Truth Social post about, uh, you know, asking for Lisa Cook's resignation or demanding Lisa Cook's you know, I think before that the market was content to sort of let the process work out, you know, because I'm not going to opine whether. I have no idea if she did or didn't do what she's alleged to have done, but we can game that out too. We're gonna talk about the Fed after all that good stuff. We can game that out, but, but the point being, I think the market was OK, you know what, she's, there may be some politics involved in the investigation. They may the thing play out, but as soon as, you know, as soon as you have, um, the, the specter of presidential interference in, in, in the Fed, that, that gets people spooked, particularly foreigners, and, and so it's no coincidence that, you know, we, we sank very quickly after that. We've since recovered a fair amount of it. Jared, I know you're a technician. It was NDX SPS was right off that 2 standard deviation Ollinger which has proved to be a very, very, um, you know, tight, it's really contained the markets, uh, to a large extent, even in April, it contained the market, except the, the band was incredibly wide. Um, but, um, you know, so that was the, that was sort of the more rational dip buying today. And then we went back to rotation having had a little bit of a risk off moment this morning. Yield so not doing much at all. I mean 10 and 30 year you down, yeah, the bond market, especially since we see with Fed Sometimes we see that the spike in long term. And are you in the camp that uh 30 or above 5% is a bad thing for stocks to let me, let me do both ways because those are both very important questions. I think the bond market, I, I watched the 210 years, the 2 versus the 10 year spread very it's been in a very tight range, pretty much, you know, 40 to 60 basis points, rock solid. It, it has gotten boring. Now, historically, you, you'd, that's still rather low. That number, that number can easily double or triple, um, and still be within relatively normal and you could also argue it might be difficult to see them going back to an aversion. On the flip side though, you know, that's partially because the 2 years pricing in a series of rate cuts, which the 10 years is not. So a lot of it will have to do with perceptions about inflation and so far they seem to be relatively contained, at some point you're right. If, if rates go, if rates go too high, they're, they have to impact stock prices, not necessarily in the short term because I, I'm, I'm, you know, a lot of the people who are chasing momentum are not necessarily doing a discounted, uh, cash revealssome bigger picture issues, maybe the debt and some other things. Oh, well, if nothing else, right, the, the, the stocks in theory are based upon the present value of the future you could do cash flows, you could do earnings, you could do dividends, whatever, but some sort of future flows of funds that one could expect from the stock. Well, if that discounting rate goes up and since stocks are essentially infinite assets, you use the longest possible rate to discount it, um, at some point, it's 30 or it could be 100, it could be. And, and you know, I've been sort of joking around using there's a continuum between discipline analysis of future cash on the other side is flight to crap, and I think we were sort of getting a bit toward the other. Yeah, not to be confused. It's flight to safety. Well, that's meant to be, it's meant to be theinverse of inverse of it and this is a great, uh, great place to pause for a little commercial break here. Uh, but coming up we are going to be talking talking Jackson Hole and Fed policy, plus a volatile runway showdown that pits smart money against the herd. Stay episode is brought to you by the lucky number 7. That's how many Jackson Hole meetings Fed Chair Powell has under his belt, and you can bump that up to 8 this year, which will be his last. And I don't think anyone is expecting Powell to rock the boat here, so maybe we're not gonna get a lot of market moving things, but let's talk about the Fed in general and where you see them right now. Markets are pricing still a couple of rate cuts. September seems to be that first month or the next month, uh, that we see them. So do you see this happening? Do you think it's a good thing or a bad thing for markets? I think the market's right to put a relatively high probability on a rate cut in September, but it's not a foregone conclusion, and I, and I'll tell you why. Politically, obviously there's a lot of pressure for it, may or may not have, um, the new, uh, Stephen Muiran approved to, to the new seat to the, to the open seat by then. He would probably be clearly, he would probably be one of the people pushing for, for a cut. I think you also have, um, Waller and Bowman clearly pricing for pushing for cut. I, I think they are participating in the Apprentice Fed edition, uh, lobbying for that lobbying for that job, uh, of chair, but, you know, so I think they're pushing in that regard, um, but.I, I think Powell is going to stress data dependence in his speech and, and you have a fair amount of data coming out between now and September. We have another read on jobs, which, to be, you know, obviously the last read on jobs was shocking for its for its for its revision.I was actually on, on, on air here and I just sort of like, you know, I don't know if I don't know if the camera caught my, my jaw dropped, but yeah, I, I think it caught the other, I think it caught the others by the same amount of surprise. I'm not unique on that one, but it was, that was stunning. So the question is, is the labor market weakening? Remember, the Fed's dual mandate is stable prices and maximum sustainable employment. Well, we, could argue that at a 4.2% unemployment rate, we're probably closer to maximum sustainable employment than not, but I don't, I'm not going to object, nor do I think many would if the Fed does something sort of, you know, a little preventative medicine against that. On the other hand, stable prices, and that's really much trickier because we still, we, we're going to we're going to have CPI and we're gonna have PPI and the Fed interprets stable prices to mean 2%, and we're above that right now. We, we've been above that. Obviously, the, the PPI number was shocking last week, another shock. And I happened, I happened to be, I was a little out of my element. I happened to be on the floor of the exchange that day because um I was uh. Have your terminal or something there exactly. So I didn't have my usual news services. I was, I was fortunate to, you know, be, uh, be invited to participate in the MyA IPO, um, cool, which was really cool, I gotta say, um, but I, you know, I, I, so I was like, why isn't the market reacting to this because I'm occasionally getting things on my phone. I'm seeing stuff go by and it's like, why are stocks not market cared to that point. The, the, the bond market gave back, the bond market gained on last Tuesday because they liked the CPI numbers. They're in line, but in line was good enough for a bit of a rally. And then on Thursday, bonds gave back everything. Stocks displayed what I'm calling that ratchet they go up big and and don't really come down as much because of the relentless dip buying and that's what we saw on Thursday. So I then went back and looked at what's going on with core PCE, which is the Fed's preferred inflation inflation gauge and three have risen in the last 3 months. So on an, you know, a lot of economists like to annualize the last 3 or 4 months. And so I'll, I'm not an economist, so I'll just be still do it. I can still do it. I, I can, I can. I, I can, I can do averages just as well as anybody else or, you know, you know, annualize and what happens there is, so those numbers are annualizing to 2% but below 3%, but they've been going up each of the last 3 months, and it's not clear still what the effect of tariffs might be because it's literally been, I think it's still under 2 weeks since the tariffs were fully implemented and we still don't really know what's going on with Mexico and, and, and China. So I, I think Powell is likely to preach data dependency and he may not, and, and, you know, to a certain extent, I wouldn't blame him if he came out basically hawkish, just psychologically, like, you know what, this is you, you, you being the president. No, stocks would hate it, but you being the president bashed me at every opportunity. I'm gonna push back and tell you why I'm not buckling under right now. And, and,and to that point, there's been this I feel like withal. Yes, he's been a little more neutral, but he hasn't totally leaned into the dove camp either. And when I was looking through the CPI prints, what stood out to me, what I've been hearing from economists is that services inflation is now getting sticky again and that had been offsetting some of the rises that we saw in goods inflation rotation within the economy and that maybe says that something more sinister is going on below the surface becauseServices isn't directly tied to trade policy. Of course there's that ripple effect if businesses are absorbing a lot of these costs, but how are you looking at that? Services versus goods inflation, and does that spell bigger trouble for the Fed? It could. and and actually that's kind of why I'm surprised that the that the yield curve has been in such a relatively stable range because there are sort ofYou know, inflationary concerns bubbling under the surface. I think we're not at an acute level yet, and I think, you know, to the market, to some extent, despite the reputation of bond vigilantes, I do think there's a little bit of don't fire until you see the whites of their eyes when it comes to so I think right now it's still in the watch and wait, uh, category to some extent, but again, I think this is why you're going to get a little bit of a public pushback from, from Chairman Powell about why he's not just pedal to the metal on rate cuts, and also, by the way, mind, the market has been ahead of the Fed for years, if not, if not decades. Think back to the think back to the beginning of 2024, right? We were 7, maybe 8 rate cuts. We got the equivalent of 4. I think we're fine, 20% plus at the year end, and we did just fine, thank you, because it's, it, it is my contention all along cuts are nice and and traders have been conditioned to want rate cuts, but you still want a strong economy and we got a, you got a strong economy in the midst of all that. I think right now they want the strong economy too, but even here, you know, the, the, the all year, the market's been anticipating rate cuts that have yet to materialize. All right, good time to pivot now to our runway showdown, which is all about volatility. Steve's Wheelhouse. I need to first mention that Steve here is somewhat famous for saying that the VIX volatility index is not a fear gauge, though many investors and those in the media call it just that, a fear gauge. As he points out, the VIX is measured through S&P 500 options activity 30 days or a month the time frame of institutions or smart money, as they say. And guess what? That is who's strutting down our left catwalk today, the 30 day VIX reflecting all that institutional hedging activity when uncertainty knocks. But we do have a measure of volatility that's based on S&P options only one day out, which is more in line with the time frame of retail investors, and this one day VIX is down our right catwalk reflecting all those zero days till expiration options contracts that sometimes go up in smoke. So assuming you accept all of my premises here, Steve, uh, my question to you is who's wearing a better gauge of market risk today? Is it the 30 day vick reflecting smart money, or should we be watching the one day vicks taking warning signals from the so-called herd? Can I, can I give a C? The 9 day VIX. There's there's a VIX 90, and I've actually been sort of curious as to why this has not been reflecting more. Just, it's the they're all the same constructions. 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Um, we also have Nvidia earnings within the 9 day yet, and yet the VIX 90 is yawning relatively and so that's not pricing and so it's still telling us that despite these couple of days of pullbacks, markets are not really looking for volatility protection, you know, so yes, we, we, you know, you, you, I'm, I've, you've used my phrase, you know, VIX is not a fear gauge but it plays one on TV several times, um, or in podcasts as it were, um, or in streaming media, as it we, um, but basically, uh, you know, what it, what it is in many ways is a proxy for the demand for volatilityprotection. Really interesting, and I will say this, anytime we can end on a wonky discussion of the VIX, it has been a good podcast. Um, and also just thinking about some of the other things we learned, we talk about rotation in the market and with sectors and industries, but we can also see it in inflation. We touched on that a little bit with the goods versus services of course we have the Fed here, no big expectations for Jackson Hole, but huge expectations for who's gonna fill that vac the potential vacancy, um, now that Cook is under fire a little bit and just kind of gaming out those September possible rate cuts. So we have officially wound things down here at Stocks and Translation, and we will see you next time. Make sure to check out all our other episodes of our video podcast on the Yahoo Finance site and mobile app. Related Videos Mag 7 Firms May Report Positive Earnings Surprises: HSBC Gower: Further Upside in Gold Driven by Falling USD Walmart earnings, housing data, Fed & Jackson Hole: What to Watch Retail earnings: Consumers are spending on needs, not wants Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
